Investors trust Trump’s two ‘magic words,’ and now it’s time to nibble on stocks

Please click here for an annotated chart of Dow Jones Industrial Average DJIA, +3.87% futures.

Please click here for a chart of S&P 500 ETF SPY, +4.21%, which tracks the S&P 500 Index SPX, +3.97%. For the sake of transparency, this chart was previously published and no changes have been made.

Note the following:

• The first chart shows a 1,300-point rise in stock market futures as Trump uttered two magic words At a news conference, Trump said he will announce “very dramatic” actions to support the economy.

• With his two magic words, Trump quickly erased the fears that had led to a 2,000-point drop in the stock market Are investors gullible?

• The second chart shows major support levels in the stock market Technically, since the first major support level was not decisively violated, it was natural for the stock market to bounce. Please see “A watershed moment is on the way if stocks can’t hold this level,” which was written prior to the 2,000-point drop in the stock market

• Our call was to take at least partial profits in the short-term trade on Nasdaq 100 ETF QQQ, +4.46% short position and adjust stops to protect profits. A short position generates profits when the market goes down.

• Long-term investments should be handled differently from short-term trades.

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Good news

When the Dow was falling by 2,000 points, fear mongering was rampant and few were looking ahead to the potential good news, I wrote: “It seems dark, but there is potential good news on the horizon that can reverse the stock market.” Please see “Stock market investors are asking ‘should I buy or sell?’ Here’s how to decide.” I identified several potential pieces of good news. Among the potential good news I identified, the following are coming true now:

• Massive fiscal response from governments. In the U.S., the response includes payroll tax cuts and paid sick leave for hourly workers.

• There are data showing that the coronavirus has potentially peaked in China.

• There are data showing that the coronavirus has potentially peaked in South Korea.

It is important for investors to not think in binary terms — it’s all good or it’s all bad. Please see “This is the No. 1 mistake investors are making now — here’s how to avoid it.”

Clues

I had previously identified several clues for a potential reversal. All of those clues are working.

• 10-year Treasury bond yield has reversed.

• Apple AAPL, +5.69% is opening 38 of its China stores.

• It appears that Facebook FB, +4.76% and Alphabet GOOG, +3.87%GOOGL, +3.49% are not seeing any drop in advertising.

• New money appears to be flowing into the shares of Amazon AMZN, +4.49% and Microsoft MSFT, +5.24%.

• Semiconductor stocks have been the leading indicators Money is flowing into Micron Technology MU, +2.24% and AMD AMD, +3.90%.

• SPDR Gold Shares GLD, -1.66% and iShares Silver Trust SLV, -0.72% are showing money outflows.

• Selling is coming into coronavirus stocks such as Gilead Sciences GILD, -2.85%, Moderna MRNA, -10.37% and Inovio Pharmaceuticals INO, -41.04%.

Time to nibble

It is time to selectively nibble but only if you meet the protection band criteria Please read “Stock market investors are asking ‘should I buy or sell?’ Here’s how to decide” — which is also linked above — and “Prudent investors should look at these four stock charts as coronavirus spreads

Answers to your questions

Answers to a vast majority of your questions are already in my previous writings this year You can access some of them immediately and for free by clicking here

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at [email protected].

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